Regulation of multi-sided transportation platforms in Costa Rica

International Journal of Arts and Social Science www.ijassjournal.com
ISSN: 2581-7922,
Volume 2 Issue 3, May-June 2019.
Oscar Ugalde Hernandez Page 24
Regulation of multi-sided transportation platforms in Costa
Rica
Oscar Ugalde Hernandez
Administrator/LIU Global Financial Officer
Costa Rica Center/LIU Global
Abstract: The contending forces generated by friction between the collaborative platform firms in the paid
transportation of people’s market, and the regulation present in anti-trust policies in Costa Rica will be
discussed in depth as a means of determining the economic impacts that new regulatory bills may cause.The
recent entryof developing countries into the collaborative economy has caused social and economic tensions
due to the lack of an updated and rejuvenated legal framework which could reconcile the economic and legal
differences.The expected results of a new anti-trust policy to regulate collaborative transportation platform
firms in Costa Rica are a higher regulated price, a lower quantity supplied of hailing rides, and a loss of
efficiency in the sector consequence of the new technical requirements. The case of Uber Company’s entry in
Costa Rica is used to depict these economic effects.
Keywords: regulation, innovation, firms, public policy, developing countries
JEL classification: Technological change (O33), Government Policy (038)
I. Introduction
The idea of ‗sharing‘ has been around since humankind made transactions of goods and services
through barter, but recent advances in technology have propelled the appearance of collaborative and sharing
platforms by which the traditional business models used in the transportation, food, and other services, need to
be reinvented. It has also brought about the emergence of a new digital evolution that requires the more efficient
utilization of ‗sharable goods‘ such as automobiles, houses, or even time through cleaning or running errands.
Access to certain assets has become more important than owning those assets since individuals obtain the
benefits of these assets without having bought them. For the suppliers of those assets, the "sharing economy" is
revolutionizing the work force and the idea of becoming an entrepreneur is becoming reachable for many more
sectors of society. In what could be a futuristic scenario with more and more events taking the world closer to
what he describes, Arun Sundararajan (2016) states that "the assortment of behaviors (and organizations) that
many of us optimistically call the sharing economy‖ are early instances of a future in which peer-to-peer
exchange becomes increasingly prevalent, and the crowd replaces the corporation at the center of capitalism
(Location No. 165).
The "sharing economy," based on collaborative consumption, has proliferated exponentially in recent
years thanks to the emergence of digital platforms and mobile applications. Although it is a new concept in the
global economy, it has spread across the board in the form of "peer-to-peer ride sharing, accommodation sharing
and renting household items" (Ernst & Young LLP, 2015, p. 6). In a Price Waterhouse Cooper report called The
Sharing Economy:the intelligence series, it is projected that "five key sharing sectors—travel, car sharing,
finance, staffing, and music and video streaming—have the potential to increase global revenues from roughly
$15 billion today to around $335 billion by 2025" (2015, p. 14).
Prior to August 2015, the concept of the sharing economy was relatively new in Costa Rica as it had
been in the United States. Uber Technologies Inc. was launched in New York in March 2009. Its first name was

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UserCab which was then changed to Uber as it is known today. Its headquarters are located in San Francisco,
California, and it is operating today in more than 80 countries (Mathawan, 2018). On August 21st
, 2015, Uber
Technologies Inc. decided to start offering its multi-sided platform in the Costa Rica with the local name Uber
Company.Luis Guillermo Solis, president of Costa Rica from 2014-2018, stated in the local newspaper,El
Financiero "Uber is illegal since paid transportation of people is a regulated service" (Avendaño, 2018). As a
new economic phenomenon, the sharing economy business model needs to re-examine or even re-invent the
regulations around them. While regulations are in place for traditional taxi operators in Costa Rica, neither its
government nor the regulatory bodies have specific rules covering on-demand transportation platforms. This
sets the stage for contending market forces of demand and supply, and regulatory interventions to collide.To
reconcile these issues, two new bills are under analysis at Costa Rica‘s Congress: Bill 20113 of 2016 and Bill
21228 of 2019. The research query which drives this work asks the following:
Could the new regulatory policy (in Bills 20113 and 21228) in Costa Rica, deter the projected
economic effects that the multi-sided platforms are expected to experience in the paid transportation
services?
To answer this research question, a couple of objectives have been determined:
 To analyze the economics of collaborative or sharing platforms in the paid transportation of people
market in Costa Rica.
 To study the possible economic effects of applying a new anti-trust regulatory policy in the paid
transportation of people sector in Costa Rica.
In order to achieve these objectives, the following methods are applied:
1. A descriptive literature review is applied in order to determine whether a series of theories and
concepts in a specific research topic unveil ―any interpretable pattern or trend with respect to pre-existing
propositions, theories, methodologies or findings‖ (Paré et al., 2015, p. 186). In this respect, the economic
theory related to multi-sided markets as well as the economic theory of regulation are examined methodically to
determine causal linkages with the case study of Uber Company in Costa Rica and the acting of Costa Rica‘s
government in regulatory anti-trust policies.
2. A comparative case study analysis is developed by which similarities, differences and patterns,
according toDelwynGoodrick (2014), are analyzed and synthesized trying to determine "how and why particular
programs or policies work or fail to work" (p. 2). This method is "particularly useful for understanding how the
context influences the success of an intervention and how better to tailor the intervention to the specific context"
(Goodrick, 2014, p. 2). The analysis is of the contending forces between the multi-sided market that Uber
Company and other minor market participants in paid transportation in Costa Rica have generated, and the
reactions that the local anti-trust policy administrators and regulatory commission may have.
This essay is organized into the following parts: 1. Introduction, 2. Theoretical framework,3. An
analytical approach of Uber Company‘s market impact and legality in Costa Rica, 4. Contending forces between
the economics of multi-sided platforms and the new proposed regulation towards collaborative transportation
firms in Costa Rica, and 5. final remarks.
II. Theoretical framework
2.1. Economic rationale of Multi-sided platforms
By the year 2000, the concept of a "multi-sided" (Rochet and Tirole, 2003 p. 990) market was
discovered thanks to the seminal paper called "Platform Competition in Two-Sided Markets" by Jean-Charles
Rochet from Université de Toulouse and Jean Tirole from InstitutD’EconomieIndustrielle. In this case, the term
"multi-sided" means a business is built upon "direct interactions between different types of customers who use
nontraditional, counterintuitive strategies to make money and survive" (Evans and Schmalensee, 2016, p. 15).
Rochet and Tirole‘s paper inspiredmany other writers to follow with important analytical contributions
tothisimportant body of knowledge, which is revolutionizing this new field of economic thought.

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Despite the robustness of different microeconomic models which have been derived over the last
century related to the economic behavior of traditional firms, its applicability in this new field of multi-sided
platform economics is not possible. There are remarkable differences in what the traditional models predict, and
how multi-sided platform economic models are characterized. The following features are distinguishing
characteristics of multi-sided markets:
A. Interdependence: Multi-sided economics state that there is interdependence between the demand by
the customers on the different sides of the platform; namely the interdependence between Uber drivers and its
customers. Uber drivers have been captivated by the flexible work hours and the benefits that the multi-sided
platform intermediary applies, and the consumers are enchanted by the sophisticated Uber application and lower
prices in comparison to traditional taxi services. The multi-sided platform would not be able to survive if one of
the sides (demands) is not present.
B. Critical mass: Maintaining such a balance requires that the platform intermediaries apply an ideal
pricing structure. Most multi-sided markets in Costa Rica such as Uberhas favored the use of price incentives on
one of the sides of the platform in order to balance the demand on both sides. At the initial stages of the
business, it is more necessary to give monetary incentives to customers rather than to setting a firm price. The
dynamism generated by multi-sided platforms allows both sides of the market to have their own demand. If
there is weakness in one of the sides of the market, it can affect the other side. As described by Evans (2011),
"multi-sided platforms are required" toobtain a critical mass of users on one side of the market by giving them
the service for free or even paying them to take it" (p. 106). The entry stage of a firm into a two-sided market is
a key moment in which the survival of the firm is subject to effective forms of pricing structure to get both sides
on board.
C. Chicken-and-egg dilemma-investing solution: To solve the chicken-and-egg dilemma, the multi-
sided platform can attempt to create demand on one side so that it is also pushed on the other side. Neither
drivers nor customers will be willing to join Uber if there is no previous demand. A mechanism to overcome
such an initial barrier is "to invest in one side of the market to lower the cost to consumers on that side of
participating in the market" (Evans, 2011, p. 107). Uber invested in two very distinguishing features which have
benefitted drivers and customers all over the world: a. its smartphone app by which riders can order a taxi ride
and pay effortlessly and can even detect the exact time and distance of the driver to the pick-up point; b. an
easy-to-use rating system for drivers by which riders evaluate their experience through their app on their
smartphones. Drivers with low scores are set apart from the platform.
One side of the market that applies low prices or other types of incentives allows the platform to solve
the chicken-and-egg problem (Caillaud and Jullien, 2003) by facilitating the participation of the group which
benefited. Eventually, this would permit the other side that had not benefitted from the low price to obtain a
similar advantage as the benefitting one. On August 30, 2018, the local newspaper Tico Times stated that "Uber
has become popular in Costa Rica for its lower prices and the convenience of ordering rides through mobile
devices, which is safer for users" ("Uber drivers protest," 2018). Uber also offers rides for as cheap as 1,200
colones (approximately $2USDat the current exchange rate) if a customer introduces the application to a new
customer.
D. Network effects what happens when "consumers value a product more,[then] the more other
consumers use the product" (Evans, 2011, p.100). These effects can be classified into two types:
D.1. Direct network effects: As described by Tirole and Rochet (2003), the interdependence
feature of multi-sided platforms generates direct network effects. They are the result of having effective
communication between users on one side and users on the other side of the platform. When users on
one side of the platform have strong demand for the service, this causes there to be a strong demand on
the other side as well.
D.2. Indirect network effects: These happen if the technological platform administrator
facilitates users to communicate effectively. Once the users on one side of the platform have stronger

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demand for the product or service, it can be considered that users on the other side have created a
demand by themselves, and "the demand for complementary products is higher and the supply of those
complementary products will benefit" (Evans, 2011, p. 100). Getting both sides on board of the
platform generates synergies which allow one of the sides to demonstrates its demand, and that it
benefits the more users on the other side. Paid transportation services that use technological platforms
fall under this category because they are characterized by the interdependence between both sides.
Both sides of the technological platform develop an interrelationship which in turn generate a cross-side
network effect, also known as an indirect network effect. The platform intermediaries may sacrifice sales on one
side to reach the much-needed critical mass, so that the other side becomes more appealing. As a result of this
strategy, the indirect network effects can help market participants to achieve a durable competitive advantage by
anchoring their market sizes on one side and to reach a dominant position on the other side, building barriers of
entry for the new arrivals (Song et al, 2015).
Differences between one-sided and multi-sided markets are remarkable. The basic rationale of a one-
sided market is to run a profitable business based on the purchase of inputs from suppliers and transforming
them into a value proposition which is generally a finished good or service. On the other hand, multi-sided
platforms depend upon the attraction of at least two types of customers by facilitating their interactions on
attractive conditions. The multi-sided platform‘s most important inputs are their customers (on one side drivers
and on the other side their riders).
Due to the breakthroughs in the last two decades in internet and in mobile devices, the multi-sided
platforms have flourished not only in the paid transport industry, but in many industries.
2.2. Anti-trust policy rationale and regulation
Why would a government, like Costa Rica‘s, be concerned with a firm like Uber growing rapidly in the
paid transportation sector? Is the Uber Company in Costa Rica gaining monopoly powers to such a level that an
anti-trust policy is justified? The application of anti-trust policies to "prohibit the acquisition or exercise of
monopoly power by business firms" (Lipsey, Steiner, Purvis, 1987, p. 290) is one of the most common
definitions to explain the influence of market power in economic decision-making.
The main objective of anti-trust policies is to encourage competition against those who attempt to
obtain monopoly power, or to control trade in other non-economic motifs such as political influence. Monopoly
profits could persist if there are barriers that restrain new competition from entering. In the case of Uber‘s entry
in Costa Rica since August 2015, it has been questioned by the local taxi drivers‘ guilds for changing markets
structures by making the paid transportation sector more monopolistic as a result of Uber‘s ‗natural‘ efficiency
and innovation reflected in its multi-sided platform. Moreover, due to its rapid capacity to achieve a critical
mass of driversand users, it has been capable of achieving economies of scale. Uber Company in Costa Rica has
also been questioned for its predatory behavior because of its rapid growth and substantial market power against
rival sellers, which has forced many of them into cooperative behavior or bankruptcy. Another complaint by
pressure groups is the utilization of price discrimination to certain market segments. This has been the result of
finding a balance between the two sides of the market and reaching an important critical mass of users and
drivers in Costa Rica. Such success has been achieved in only three and a half years of operation in Costa Rica
and has raised some red flags in pressure and rent-seeking groups to determine the Uber Company‘s legal status
in Costa Rica. Is the Uber Company a public utility, and therefore obliged to fulfill all legal requirements as a
traditional local taxi company?
Paid transportation in Costa Rica is a public utility, thus it is maintained by a regulatory commission.
The local taxi providers are managed by the Public Transport Council (PTC), which is the local public
regulatory commission for transportation services for this country. In return for giving a company the right to be
the sole producer, the PTC reserves the right to regulate its behavior of entry. Any other form of paid
transportation that tries to compete with local taxis would be considered illegal. The licenses facilitated to local
taxi providers provides them with a "natural" barrier of entry. When the Uber Company arrived in Costa Rica, it

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started operating as a private facilitator of people‘s transport services with no regulation from any regulatory
commission or any government agency. Interestingly, the local taxi drivers have generally organized themselves
in the form of territory-affiliated (T.A.) cooperatives. Other taxis function independently as regulated local taxis
attached to a certain territory. Thus, they function as a regulated T.A. natural monopoly.
What restrains regulated natural monopolies of T.A. taxi drivers‘ cooperatives from acting as a profit-
maximizing monopoly which restricts output, raises price, and fails to provide the large volume of output at a
low price that the technology makes possible? The price set by the regulatory commission has often aimed at
setting prices high enough to permit firms to cover all their costs, yet low enough to achieve the large sales
required to reap the scale economies that characterize natural monopoly situations. If a regulatory commission
knew the demand curve and the cost curve exactly, it could simply pick the price indicated by the intersection of
the demand curve and the average total cost curve, as depicted in Figure N. 1, which is important because it is a
balanced option between the efficient price and the monopoly price. This is called average cost pricing. It will
not, in general, lead to allocative efficiency because price is not equal to marginal cost, as depicted in the
following graph. But average cost pricing would give much lower prices and a larger output than a
monopolist‘s.
Figure N. 1: Average cost pricing in natural monopolies
Source: Adopted from Rice University (n.d.).
The reality shows that regulatory commissions generally do not have accurate demand and cost
information, so they have tended to judge prices according to the level of profit they produce. Generally having
set prices, regulatory agencies permit price increases when profits fall below "fair" levels and require price
reductions if profits exceed such levels. Thus, what starts as price regulation becomes instead profit regulation.
Having done a revision of how collaborative transport platforms behave and how the government could react to
them via anti-trust policy, an analysis is elucidated regarding Uber Company‘s market impact and legality in
Costa Rica.
III. An analytical approach of Uber Company’s market impact and legality in Costa Rica
3.1. Market entry, economic impact and contending interests
In 2015, the Uber Company started operations in Costa Rica (Soto, and Avendaño, 2018) without
having requested any authorization to operate to any government agency or regulatory commission. The Uber
Company entered boldly into the Costa Rican transport scene. The Uber Company‘s manager in Costa Rica at
that time, Humberto Pacheco, argued that it was functioning legally in Costa Rica based on the legal figure of
‗self-managed‘ or ‗self-sufficient‘ transportation communities (Rodriguez, 2016). Additionally, Uber
Company‘s spokesperson in Costa Rica, Rocio Paniagua, explained that these ‗self-managed‘ or ‗self-sufficient‘
transportation communities are a ―community of members (users and drivers) created to self-manage or self-

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supply their mobility-specific needs" (Rodriguez, 2016). The Public Attorney‘s office of Costa Rica had issued
several legal opinions that establishes the possibility that the traditional public utilities, for instance, drinkable
water or electric energy, could be generated or supplied through the communities of self-management or self-
sufficient communities. (Rodriguez, 2016).
Ever since, Uber Company in Costa Rica has confronted several setbacks. The initial impression by the
Ministry of Transport and Public Works is one of illegality in relation to Uber Company‘s operations in Costa
Rica, the local Transit Police began issuing fines of approximately $200 and confiscating Uber drivers‘ cars. On
August 21st
, 2015, the first two Uber cars were confiscated in a special operation undertaken by the Transport
police to identify illegal drivers (Rodriguez, 2016). On February 19th
, 2016, the Constitutional courts adopted a
claim presented by two Congress members, Otto Guevara and Natalia Diaz, by which they requested to call the
actions of the Transport Police ‗unconstitutional‘. The final ruling favored the request made by the two
Congress persons and all negative actions against Uber drivers in Costa Rica had to stop. However, the issue of
its legality in Costa Rica was not even mentioned by the Constitutional courts.
Another relevant setback originated because of a pricing strategy that Uber Co. adopted on April 26th
,
2016. It applied a 20% reduction to its rates in Costa Rica. Such a decision was very welcome among Uber
customers, but had a very negative opinion from the rent-seeking traditional T.A. taxi drivers and their
organizations such as taxi cooperatives. (Rodriguez, 2016) The ‗red taxis‘ as they are traditionally called in
Costa Rica, organized themselves into strikes, where they were slow driving on highways, and even created road
blockades. The objective of these actions was to put pressure on the government to make Uber Company and its
efficient platform illegal.
Despite these setbacks, Uber Company in Costa Rica has experienced a very impressive market entry
and consolidation in these first three and half years of operations. In the following chart, the affiliations of
drivers during its first three and a half years of operations can be depicted in Figure N. 2:
Figure N. 2: Uber drivers in Costa Rica (period August 2015-July 2018)
Source: El Financiero (Avendaño, 2019), (Chacón, 2017)
As depicted in Figure N. 2, Uber drivers have grown from 7000 drivers during the first year to 21000
drivers at the end of the third year of operations.In a similar trend, Uber Company‘s platform customers have
had a very robust growth in the last three and half years of operations in Costa Rica. Figure N. 3 depicts this
trend.
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Figure 3: Uber customers in Costa Rica (period August 2015-July 2018)
Source: El Financiero (Avendaño, 2019), (Chacón, 2017)
Uber Company customers‘ affiliations to its platform has moved from 225,000 users in July 2016 to 800,000 in
July 2018. This represent an increase of 255% in two years.
On the customer side, the Uber Company has applied aggressive pricing strategies which caused an
impressive growth in only three and a half years of operations in Costa Rica. It entered Costa Rica with a rate
"51% lower than the taxi fare" (Rodriguez, 2016). The official rate per kilometre of taxi rides in August 2018
was at 630 colones, which was approximately $1.10 USD, but Uber drivers were charging 300 colones, which
was approximately $0.54 cents of a dollar.
On the drivers‘ side, a survey was given in December 2016 by El Financiero newspaper to Uber
drivers. At that time, there were 13,000 Uber drivers, and there were 6138 responses via email. It was
discovered that 58.5% of the respondents said Uber Company represented their main source of income.
Moreover, 50% of the respondents were on average between 21 and 35 years of age. People above the age of 55
years represented 5.7% of the total Uber drivers that responded to the survey (Chacón, 2017).
Through incentives, innovation, and decent economic conditions, Uber Company has positioned itself
as an attractive option for both users and drivers. The result is a successful market penetration, which has
reached to 16% of the total population of the country and has been able to surpass 22,000 Uber drivers. The
amount of traditional T.A. taxis in the country was at 16,500 units by 2018.
Despite such positive results in its operations, the legal scenario is still not clear for Uber Company in
Costa Rica. Would it be able to maintain its operations in Costa Rica legally, under the shadow of an anti-trust
policy, and still make a profit? The next sections sketches the several legal scenarios that the Uber Company in
Costa Rica is confronting and will confront in the near future.
3.2. Legal status of Uber Company in Costa Rica and relevant anti-trust policy: Is it justifiable to
regulate it?
Neither the judicial nor the legislative authorities have taken a position regarding the Uber Company‘s
legality in this country.As a result of the Uber Company´s controversy in entering Costa Rica without a well-
defined legal status, several relevant individuals and institutions have issued statements trying to interpret Uber
Company‘s and other similar firms‘ legal status.
The traditional Taxi Drivers‘ Guild has expressed its disagreement in allowing the collaborative
platform firms such as Uber Company, to operate in the country. According to Law N. ° 8955, any paid
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July 2016 September 2017 July 2018

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transportation service of people is required to pay some levies and to fulfill certain technical requirements.
However, the Uber Company has been using the legal figure of ‗self-managed‘ or ‗self-sufficient‘ transportation
communities. This figure does not exert any kind of financial or technical requirement on Uber drivers. The
traditional Taxi Drivers‘ Guild interposed an open process in the Administrative Courts (Case number 16-
004576-1027-CA), which is expected to determine the Uber Company‘s legal status.
The former president, Luis Guillermo Solis, declared the illegality of Uber Company indicating that "In
regard to Uber, it is a public service. Laws in Costa Rica include paid transportation services of people as a
public service. The local law regulates public services and establishes very concrete conditions for them
regarding controls, quality and insurances. So therefore, an activity that is not regulated is an illegal activity.
There is no other option" (Presidencia de la Republica, 2015).
In addition to this, the Attorney General´s Office of the Republic statedtheir legal opinion about Uber
Company‘s legality in Costa Rica with the following:
A. From the moment Law n. ° 8955, named Public Paid Transport with Vehicles of People
Regulatory Law, was in place on June 16th,
2011, paid transportation of people in Costa Rica
(independent of the type of motor vehicle that is used or the people for which it is destined to) is a
public service. According to Law n. ° 8955, traditional T.A. taxi drivers must pay taxes over their
revenue, must take their cars to technical revision twice a year, and pay an obligatory fee to the PTC to
keep their license plates renewed, and other legal requirements established.
B. Once Law n. ° 8955 was implemented, no person –physical or legal– was able to offer the
service of paid transportation of people if the person had not been given the respective authorization –
concession or permit, by the PTC.
C. Article 145, Subsection Y, of Law n. ° 8955, states that all owners and drivers of motor
vehicles who are dedicated to offer paid transport services of people must be sanctioned and fined, if
they do not have the proper authorization from the PTC.
Thus, the Attorney General‘s Office concludes that any firm offering paid transportation to people should be
categorized as a public service. Even though this legal opinion does not determine the legal status of Uber Co. in
Costa Rica, it can be deduced that Uber Co. must comply with the existing dispositions of this Law. By not
doing so, it can be interpreted as acting in an illegal manner. Yet, the presence of Uber Company in Costa Rica
is bolstering the Costa Rican economy since it provides constant employment in an area that needs to be tackled
- transport in Costa Rica.
Even though these legal opinions shed light on how Uber Company‘s operations in Costa Rica could
fall under the status of illegality, the enforcement of Law n. ° 8955 has been weak, and the local transportation
authorities have not taken any definite decision in relation to charging the same fines to Uber drivers that the
taxis do. Only sporadic actions were taken by the Transit Police by which some Uber drivers and their cars were
fined, and some cars were even confiscated. However, Uber Company continued functioning through its multi-
sided platform and its app, with a degree of fear and worry that the police may stop them.
To have a definite solution to the collaborative transportation dilemma in Costa Rica, congressman
Franklin Corella proposed, in September 2018, a new bill to Congress calledtheCollaborative Mobility Law in
Costa Rica, which was assigned file number 20113. As its name indicates, this bill is expected to regulate
collaborative transportation. In the bill‘s document, there is a very important clarification in article 4 as to the
definition of collaborative transportation, namely ―the modality of land transport that is not subjected to
established prices, itineraries, routes, schedules, nor passing through frequencies, facilitated by a physical
person who offers at their convenience through technological platforms a vehicle, their asset, in order to satisfy
the needs of mobilization of other people through a previous mutual agreement" (Corella, 2018, p. 4). Based on
this definition, Uber Company can be classified as a firm that can be regulated under this new bill and,
therefore, be subject to its dispositions if it gets approved.

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In article N. 6 of Bill N. 20113 (Corella, 2018, p. 11), the Collaborative Mobility office would be
created if the bill is enacted. It is expected to administer and supervise the registration of collaborative
transportation firms and their drivers. It is also responsible to create and manage public policy regarding this
subject, and to make sure that the collaborative firms and drivers fulfill all the regulatory requirements that the
Ministry of Economy, Industry and Trade determines.
In article 40 of Bill N. 20113 (Corella, 2018, p. 20), other set of requirements are established so that
multi-sided transport firms can operate in the country:
 To create and maintain an updated internal registry of collaborative drivers, their vehicles, as well as
their platform company operators before the Transport Company Network. This is a network regulated
by the PTC as part of the Minister of Public Works and Transportation.
 To give every customer of a ride a receipt that contains, as minimum, the following information from
each collaborative mobility service provider: price, traveled route, license plate, and type of
collaborative vehicle, full name, and photo of the collaborative driver.
 To charge a 3% tax to collaborative drivers for any sale of transportation of people service. This
amount will be used to finance the creation of the National Mobility Fund which would be part of the
PTC, and its goal is to modernize public transportation in Costa Rica. (Fernandez, 2019).
As a response to this Bill proposal, which was considered favorable towards the multi-sided platform operator
firms in Costa Rica, there is an evident lack of support from members of Congress and a strong opposition from
the traditional taxi guilds. There are threats from such groups to promote a nation-wide strike which includes
blocking roads. A new government assumed office in May 2018, and the country‘s new president Carlos
Alvarado along with the new Minister of Public Works Rodolfo Mendez, have pushed forward a new bill
proposal by which a new equilibrium is expected to be reached in the paid transportation sector in Costa Rica
(Avendaño, 2019).
On January 21, 2019, the recently elected government presented to Congress a new bill with file
number 21228, which is called the Reform to the People´s Paid Transportation System and Transport Platforms
Companies´ regulation. Its main objective is, according to the new Transportation Minister Rodolfo Mendez, to
"generate the optimal conditions so that the taxi companies and companies like Uber, can coexist" (Avendaño,
2019).
The most important characteristics of Bill N. 21228 are stated as follows:
 To collect a fine of 8300 million colones (at the current exchange rate it is $13,737,000USD) from
Uber Company prior to getting registered as a private transportation operator in the country. This
amount is equivalent to 18,600 base salaries based on the Judicial Power´s scale. This fine would be
applied to any collaborative transportation company which operated in the country prior to the approval
of this Bill.
 To charge all firms offering transportation service in the collaborative vehicles‘ market, such as Uber
Company, a 13% corporate tax.
 To collect an 8.5% remittances tax from collaborative transportation firms in any money transfers sent
overseas.
 To create a new legal figure called Transport Platforms Companies (TPC), which would allow PTC to
classify and register any collaborative transportation firm operating apps to match drivers and
customers which require collaboration.
 To declare all TPCs a public utility company, however they will not be subject to the direct regulation
of public prices such as taxi, water and electricity firms.

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 To collect from all TPCs which begin to operate after the law is approved, a fee of 100 base salaries in
order to be registered legally in the PTC. In order to renew their registration yearly, they must pay 50
base salaries.
 To collect a 13% value-added tax to any collaborative driver providing rides to customers.
 To collect a yearly levy of $200 to any driver registered in any collaborative transportation firm that
uses a multi-sided platform. This fee is to be used in the administration and supervision of the future
Registry of Technological Platforms which is to be created as part of the PTC. An additional levy of
$35 would be charged to any driver in the collaborative industry in order to get a "driver´s code" which
would be used to finance the current and operational costs of the PTC.
 To charge a 3% of the amount charged to any collaborative transportation customer who requested a
transportation service through the multi-sided platform of any collaborative operator company. This
amount will be used to finance the creation of the Mobility National Fund which would be part of the
PTC. The Fund‘s goal is to modernize public transportation in Costa Rica (Avendaño, 2019).
A comparison between Bill N. 20133 and Bill N. 21228 leaves a sense of bias towards Bill n. 21288, when
considering the government‘s intentions to regulate the collaborative transportation firms and their drivers in
Costa Rica. The package of new regulations and conditions for the ascending collaborative transportation sector
in Costa Rica seems to act as an anchor that prevents it to get out of sight. A few questions arise in terms of the
possible consequences that the enactment of Bill N. 21288 may cause: Could the new anti-trust policy
embedded in Bill N. 21288 deter the collaborative transportation firms and their drivers from operating in Costa
Rica? Would the new set of regulations directed towards the collaborative transportation firms, such as Uber
Company and their drivers, in Costa Rica hinder its recent growth in numbers of drivers and customers? The
next section discusses the possible economic consequences of enacting Bill N. 21288 and its set of anti-trust
regulations and requirements.
IV. Contending forces between the economics of multi-sided platforms and the new
proposed regulation towards collaborative transportation firms in Costa Rica.
4.1. Possible economic consequences of Bill N. 21288 on collaborative transportation firms
In this case, the new bill could impose a penalty of approximately $14 million U.S. dollars with the
intention to decrease an undesired market behavior. According to the opinions abovementioned related to the
legal status of Uber Company in Costa Rica since its entry, they have been operating without the appropriate
permits or concessions generally issued by the PTC. Such a compensatory penalty may seem like a very large
sum of money for Uber Company to pay if the bill is enacted. However, in a recent valuation made by United
States banks to Uber Technologies Inc. in October 2018, it is estimated that it will be worth $120 billion dollars
once it becomes a public company during 2019 (Reuters, October 2018). Would the imposed $14 million U.S.
dollars penalty be enough to discourage Uber Company from growing as it did in the last three and half years?
Would be it an effective regulation to prevent other collaborative transportation firms to enter the Costa Rican
paid transportation of people‘s market?
This penalty may impact the short-run operations and finances of Uber Company in Costa Rica.
Because multi-sided platforms in their entry stages in a new market rely heavily on achieving a critical mass, it
is necessary to apply certain benefits such as price strategies on one of the sides of the platforms and the demand

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on the other side of the platform will be influenced positively. With the severity of this penalty, it becomes very
difficult for Uber Company to apply such price strategies. It is not uncommon for these collaborative
transportation firms to operate with financial and economic losses in the short run. However, its capacity to
balance these short-run losses with increases in critical mass and thus in its sales via collaborative platform
would be minimized.
This penalty imposition would also directly hurt the capacity of Uber Company in Costa Rica to
achieve indirect network effects. It would reduce its capacity to maintain the high levels of critical mass
achieved up to today (800,000 customers subscribed on one side of the platform, and 22,000 drivers on the other
side of the platform) (Avendaño, 2019). Therefore, its capacity to offer below average market prices would also
be diminished. Its average total costs are going to increase as a result of the penalty imposition in the short-run.
Therefore, its marginal cost would increase. The new short-run price that would prevail after paying the penalty
is equivalent to the regulated price applied in natural monopolies.
Another important economic effect taking place as a result of enacting Bill N. 21288 is the increase of
a 13% in the corporate income tax on the Uber Company‘s yearly profits (Avendaño, 2019) The short-run to
long-run effects of a 13% income tax are diverse. On one side, it could decide to charge this tax directly to the
customer by increasing the prices of ride services. On the other side, the Uber Company may not be concerned
with making profits in the short-run, and instead apply pricing strategies that would enhance its market
penetration. Its capacity of achieving a critical mass on both sides of the platform and obtaining indirect effects
could be slightly deterred if the tax payment is directly charged to the customer at a higher price with the
consequent reduction in the service quantity demanded. It is important to point out that this is a tax that is
charged to all firms in Costa Rica, unless the firm is categorized as an exemption. The Uber Company in Costa
Rica has stated in many occasions that it is willing to fulfill all local legal and tax regulations.
In addition to these new impositions that could be created once Bill N. 21288 is approved, there could a
new tax of 8.5% on all money transfers that collaborative transportation firms make overseas. It could have a
couple of economic and financial effects. Collaborative firms are going to think twice before sending their
corporate profits outside of Costa Rica. Even though this decision affects mainly the collaborative firms‘
operational costs, it would not have a direct effect on the price charged to customers. If this bill is approved, it
can affect the overall collaborative firm‘s capacity to generate indirect effects, and to apply effective pricing
strategies through the collaborative platform as well.
The above-mentioned economic effects of enacting Bill N. 21228 on the collaborative firm (the penalty
of $14 million USD, a 13% income tax on corporate profits and an 8.5% tax on remittances sent overseas), has a
common impact on how the market sets its price. The price is going to move from an efficient price currently
being offered to customers to a regulated price where the average total cost meets the demand curve. This bill
enactment would lead to a higher ‗regulated‘ price (as depicted in Figure N. 1), and a lower quantity supplied, or
quantity demanded (depending on whether we are talking about the driver or the customers). Any combination
of these economic effects would lead to a higher price which would take collaborative transportation firms a
step closer to the price that traditional T.A. taxi drivers have as a traditionally regulated sector.
4.2. Possible economic consequences of Bill N. 21288 on collaborative transportation drivers
The enactment of Bill N. 21228 on collaborative transportation firms can cause several economic effects on
the collaborative drivers, which revolve around the concept of setting a ‗regulated‘ price.The first expected
economic imposition to be applied to the collaborative drivers is a 13% value-added tax effective July 2019.
This tax will be charged regardless of Bill N. 21228 being approved or not. It will increase the price for the
customer directly, and indirectly increase the financial and economic opportunity cost for every collaborative
driver since he/she will have to keep very good accounting records along with the submission of the tax forms
linked to it. It will be required for a collaborative driver to hire an accountant to do the accounting in an
effective manner. It is hard to estimate how many of the 22,000 Uber drivers in Costa Rica today will be willing
to adopt these measures. It is expected that it is going to decrease the quantity supplied of services, along with
an increase in the price to the customer because of the value-added tax.

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The other financial impositions that are expected to take place with Bill N. 21228 are the following levies
(the use of these levies is explained above):
 $200 for obtaining the ‗right‘ to be registered with PTC as a multi-sided platform.
 $35 to obtain the driver´s code.
The total yearly sum that collaborative drivers would need to pay to operate legally is $235. The economic
effects of these two levies are going to be applied noticeably mainly in the price charged by collaborative
drivers, or in the collaborative firm´s costs, or in a combination of the customer price and the firm´s costs. If the
collaborative driver and the Uber Company decide to pass these levies on to the customers, it would increase the
collaborative hailing rides‘ price. If the Uber Company decides to assume the two levies as their responsibility,
then its operational average total costs would increase which would could eventually also be reflected in the
collaborative hailing ride´s price. The hailing ride price would get closer and closer to what the traditional
‗regulated‘ T.A. taxi drivers have conventionally charged their customers.
Lastly, a 3% surcharge is to be included in every collaborative hailing ride service. So, every customer
who requests a ride service from the collaborative platform would be charged in the invoice an additional 3%.
Similarly, as with the 13% value-added tax or the two levies, the price charged by collaborative drivers to its
customers would increase because of higher average total costs, leading to a regulated price that is closer to
what traditional ‗regulated‘ T.A. taxi drivers have commonly charged their customers.
The impositions by themselves or a combination of the 13% value-added tax, the $235 levies, or the
3% surcharge, share a common economic effect that could impact the individual driver and customer. In all
cases, the price for the hailing ride service would increase to a level similarly to the one currently charged by the
traditional ‗regulated‘ T.A. taxi drivers. However, the collaborative platform firms have on their behalf the
innate characteristics that have made the Uber Company in Costa Rica successful: interdependence, indirect
network effects, and achievement of critical mass via pricing strategies. Could these innate characteristics of the
collaborative transportation market outweigh the expected regulations that are about to be discussed and
eventually approved in the Costa Rican Congress in the long-run?
F. Final remarks
The experience of collaborative or sharing transportation platform firms in developing countries,
specifically in Costa Rica, has demonstrated that no country was ready to embrace and regulate such an
innovative economic sector. The lack of a well-defined, politically accepted, and updated regulatory policy has
led to market frictions with an uncertain future.
The successful entry of the Uber Company in Costa Rica has created the necessary conditions for it to
obtain and maintain the required critical mass, indirect network effects and interdependence that platform
economics states are needed for its sustainability and growth. However, it has also created some ‗antibodies‘
among the rent-seeking groups conformed by the traditional taxi guilds and the Ministry of Public Works and
Transportation. These two contending forces, the economic one represented by the Uber Company and the
regulatory one represented by the political proponents (guilds and Ministry of Public Works and Transportation)
of Bill N. 21288, are expected to find either a midpoint in which the two forces will be able to coexist, or in the
worst case scenario, one of the sides decides to take stronger legal or economic action against the other.
The overall expectation is that the Uber Company will gain access to the needed legality in conformity
with the Costa Rican Law if it adopts the requirement of Bill N. 21288, but at a very high cost to its customers.
The expected economic impacts of the new bill are higher regulated prices, a lower quantity supplied of the
collaborative drivers, and a collaborative sector so restrained of its innate economic characteristic that it may be
pushed away from its raison d’etre.

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References
that drivers were attracted towards the exible work hours and the incentives provided by Uber. The presence
of sophisticated Uber application and lower price
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